Loan Loss Forecasting and Provisioning

2 Loan Loss Forecasting and Provisioning

OFS Loan Loss Provisioning and Forecasting (LLFP) is designed to aid institutions in calculating the provision or allowance for exposures as per IFRS 9 proposed guidelines. Institutions must estimate future losses based on forward-looking factors and make provisions accordingly. Thus, the LLFP Application calculates the expected loss.

The International Accounting Standards Board (IASB) had published standards (IFRS 9) on the calculation of loan losses and its subsequent provisioning. IFRS 9 was published in 2014 and is effective from the year 2018. It has 3 phases:

IFRS 9 (Phase I): Classification and Measurement
IFRS 9 (Phase II) Impairment
IFRS 9: Phase III: Hedge Accounting

For more information about the IFRS 9 guidelines, see the IFRS 9 Financial Instruments guidelines published by IASB in July 2014.

Similarly, Financial Accounting Standards Board (FASB) - the US-based standard-setting board, which applies to organizations within the USA, had come out with its own set of guidelines for loss reserve computation and provisioning, in 2016, termed CECL - Current Expected Credit Loss and the same is effective starting December 2019.